Property refurbishment funding doubles in 12 months

The rise of the bridging sector continues unabated as it remains largely unaffected by the string of challenges currently facing the mainstream mortgage market. If anything, bridging finance is arguably more stable than ever, with the industry lending record amounts, average loans rising, LTV ratios falling and rates lower than ever.

Looking at the current state of the property market, it’s not difficult to see why. House prices continue to rise rapidly in many areas and, when combined with increased scrutiny being placed on affordability through the Mortgage Market Review and loan-to-income ramifications, it’s little wonder that many borrowers – particularly first-time buyers – continue to struggle to find their feet on the property ladder. Another major concern is the lack of new, affordable housing. This is an issue that has long gone unanswered and it’s clear that the government, in conjunction with high street lending, is still coming up short when it comes to providing the right kinds of solution.

This means that developers, investors, landlords and borrowers of all kinds are searching for more innovative and flexible solutions to help bridge this lending gap. More sophisticated alternative lending via bridging finance is currently creating an increase in opportunities to transform more and more empty or rundown properties into real homes. Thankfully, it appears that some decent progress is being made.

A few months ago, an industry survey suggested that property refurbishment projects had seen funding more than double in the last twelve months. Also, a net 57 per cent of brokers said they were expecting growth in lending for property refurbishment and conversion, which represented a significant rise. In addition, intermediaries stated that they wanted lenders to do more to assist refurbishment projects, with more than a third of brokers listing property refurbishment and conversions as areas in which they would like more product availability.

It is clear that bridging loans can give individuals and smaller institutions access to the property lending market, previously dominated by increasingly cautious large banks. As the market grows, it’s evident that refurbishment product ranges will expand to meet the demand from growing numbers of dedicated property professionals.

An increase in widespread consumer confidence and demand for alternative lending solutions has led to a raft of providers enhancing their propositions and product portfolios across the board. As more and more lenders enter and extend their offerings, this will inevitably result in further competition, which will work to increase the clarity, quality, choice and availability of the products on offer, all of which represents good news for brokers looking to add an even stronger array of bridging options to their portfolio and additional flexibility to meet a range of clients’ needs.

However, one of the areas which has attracted a lot of attention of late, centres on the shortage of lenders for first-time developers. These are not professional developers, and as such traditional sources have been unwilling to back them, so many have been stuck by the Catch-22 of not being experienced and, because they were finding it difficult to get finance, doubly unlucky, because without finance they were never going to get that experience. There is a large market for regulated development loans, and if our experience is anything to go by, it will require lenders to be able to tailor their offering to the individual needs of the borrower.

In this case study, the applicant needs more than just a vanilla approach to funding:

The applicant had found a property in Wales, with planning permission for two further properties in the garden. Unfortunately, the applicant did not have the cash for the purchase or the build, but he had an existing property with a large amount of equity.

The applicant needed cash for the purchase and the development, with a view to doing up the existing house for sale and building, developing and selling on the two new properties.

Masthaven was able to provide a flexible package as a regulated loan over 12 months, which provided funding for the full purchase price plus associated fees and then a facility for full development costs. To keep the costs down, we provided four drawdowns as the development continued to minimise the applicant’s exposure to interest and took a second charge on the existing residential property during the development.

The case illustrates the flexibility of the Masthaven approach of working with a client and his broker to create a package which meets a client’s specific needs.